Repo rates increase not all doom and gloom for savvy consumers; Image; Supplied
Repo rate increase not all doom and gloom for savvy consumers
Nedbank’ Retail Investments says a change like this should be seen as an opportunity for smart investors to diversify their savings.
Repo rates increase not all doom and gloom for savvy consumers; Image; Supplied
The South African Reserve Bank’s announcement that the repo rate would rise by 50 basis points is not the best news for consumers but, as always, Nedbank’s Retail Investments says a change like this should be seen as an opportunity for smart investors to diversify their savings and investment portfolios.
An interest rate hike means that any loans one has (such as hire purchase agreements or mortgages) will be more expensive, but at the same time, it means that the interest the bank pays on certain deposits will also increase. A higher interest cycle does therefore present an opportunity to take out an investment that would lock in that rise over the medium to long term because in due course, of course, interest rates will come down.
For example, certain notice and term deposit accounts would tend to offer higher interest rates after the rate hike –when the interest rate is high, opening such an account is a way of locking in that benefit even when the cycle turns.
Diversification should be a key guiding principle of any investment portfolio
Diversification should be a key guiding principle of any investment portfolio. A fixed-rate or term investment will be for a specific number of months, and during that time the money cannot be accessed without the customer being charged a penalty fee. To maximise growth, one should capitalise on the interest earned as well. It is prudent also to have money in a variable rate account that can be accessed quickly in an emergency. COVID-19 lockdowns proved the value of this approach as the proverbial rainy day became a reality. Even after the pandemic, life will still go on, and one needs to have funds accessible within a reasonably shorter time period.
12-month Tax-Free Fixed Deposit available to South Africans
Illustrated in the below table is an indication of the interest rate applicable for a 12-month Tax-Free Fixed Deposit available to South Africans to take advantage of the higher interest rate. The table also shows the interest rates that could be earned on deposits into these solutions, depending on the amount saved and the time it is saved for.
| Capital | Interest Rate | Daily Interest | Start date | End Date | Number of days | Interest amount |
| R 36 000.00 | 9.0500% | R8.93 | 01-Mar-23 | 01-Mar-24 | 366 | R 3 266.93 |
| R 75 266.93 | 9.0500% | R18.66 | 01-Mar-24 | 01-Mar-25 | 365 | R 6 811.66 |
| R 118 078.58 | 9.0500% | R29.28 | 01-Mar-25 | 01-Mar-26 | 365 | R 10 686.11 |
| R 164 764.69 | 9.0500% | R40.85 | 01-Mar-26 | 01-Mar-27 | 365 | R 14 911.20 |
| R 215 675.90 | 9.0500% | R53.48 | 01-Mar-27 | 01-Mar-28 | 366 | R 19 572.14 |
| R 271 248.04 | 9.0500% | R67.25 | 01-Mar-28 | 01-Mar-29 | 365 | R 24 547.95 |
| R 331 795.99 | 9.0500% | R82.27 | 01-Mar-29 | 01-Mar-30 | 365 | R 30 027.54 |
| R 397 823.53 | 9.0500% | R98.64 | 01-Mar-30 | 01-Mar-31 | 365 | R 36 003.03 |
| R 469 826.56 | 9.0500% | R116.49 | 01-Mar-31 | 01-Mar-32 | 366 | R 42 635.79 |
| R 548 462.35 | 9.0500% | R135.99 | 01-Mar-32 | 01-Mar-33 | 365 | R 49 635.84 |
| R 634 098.20 | 9.0500% | R157.22 | 01-Mar-33 | 01-Mar-34 | 365 | R 57 385.89 |
| R 727 484.08 | 9.0500% | R180.38 | 01-Mar-34 | 01-Mar-35 | 365 | R 65 837.31 |
| R 829 321.39 | 9.0500% | R205.63 | 01-Mar-35 | 01-Mar-36 | 366 | R 75 259.21 |
| R 940 580.61 | 9.0500% | R233.21 | 01-Mar-36 | 01-Mar-37 | 365 | R 85 122.54 |
| R 1 061 703.15 | 9.0500% | R263.24 | 01-Mar-37 | 01-Mar-38 | 365 | R 96 084.14 |
*Disclaimer: The above scenario is calculated on a static interest rate over the calculation period
Start your savings journey right now
The above illustration proves that thanks to the interest rate hikes we’ve seen since November 2021, there’s never been a better time to get your savings journey underway than right now
That said, investors should always ensure they get good advice.
Every type of investment has pros and cons. For example, if the interest rate goes even higher, a fixed-rate investment would not benefit from that extra rise, but it will protect you when the interest rate drops. By contrast, a variable rate account will allow you to benefit from all the rises in the interest rate, but its returns will drop as the interest rate inevitably declines, she says. Good investors look at the big picture and are always looking for things they can do to optimise their portfolio.
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